Choosing the right corporate structure

Let's start by first touching on the different types of business models. Whether you are just starting out with your venture or you already have an established one, you should stop and think about its legal structuring. It is vital that you think about this as an entrepreneur, that you choose the most suitable business structure, taking into account the legal and fiscal ramifications. From the moment you start your venture until, if at all, it is dissolved.

You may think it is a bit pessimistic to think this way, but when you start a business you must have a clear exit strategy from that moment on. In this topic I want to offer you tools to choose the right business model to use, through a general exposition of its characteristics. You should also know that only a lawyer or economist has the necessary knowledge to guide you through this process completely. You can research and learn so that when you face this process you will have more knowledge.

Main types of business structuring according to their legal form

The laws in this regard may differ depending on the country where you live. But there are common characteristics that facilitate their implementation internationally. The descriptions I give you in this topic are intended to give you a general idea of the subject, so that you can adapt them to your specific conditions.

In the United States, for example, there are three basic types of legal structuring of companies:

• Sole proprietorship.

• Limited liability companies.

• Corporations.

The main differences between these types of companies are simple and easy to understand. One of the first things you should know is that these structures are not unique and perpetual to your business. If you decide down the road that you want to change it, you can do so. If, for example, you start your business on your own as a sole proprietorship, and in the future you expand and add other partners, you could convert it to a limited liability company or a corporation.

In this section I want to give you an overview of the main characteristics, benefits and weaknesses of the different ways of organizing your business.

Sole Proprietorship

Businesses that decide to use the sole proprietorship or partnership structure are not legally separate from their owner. This means that, in the event of failure or bankruptcy of this company and debt to investors or financial institutions, the assets and property of the owner can be used to pay off this debt. For this purpose, any of the assets can be used, such as a house, car or other property owned by the owner, depending on the size of the debt and its characteristics.

Companies with this type of structure also control taxes and losses differently. In this case they are usually taxed in unison with the owner and the company.

Corporations and Limited Liability Companies

Businesses that become corporations or limited liability companies are then a separate legal entity from their owners. In this case the owners have much more protection in the event of bankruptcy.

This means that, in the event of debt or bankruptcy, most of the time the assets and property of the business owner cannot be used to pay. Corporations, partnerships and limited liability companies are taxed separately from their owners.

Other types of business structuring

For all the